4_2 - reputational risk

VOLKSWAGEN EMISSION SAGAAN INCURSION ON REPUTATIONAL RISK AND CRISIS MANAGEMENT

OBJECTIVES

• Provide an overall knowledge of classical reputation management and its evolvement

• Supply an overarching knowledge on VW’s hard-built image

• Brainstorm on the crumbling of that images with a focus on the devastating effects

• What has been done by VW so far to react to this scandal?

• What can people take away from the case of VW? What changes can be expected?

AGENDA

• Reputational Risk & current development by Hieu, Hoang

• VW established Image by Hoang, Vu Tuan

• The crisis and its crushing effects by Hai, Truong Hoang

• VW mitigation efforts & their impacts by Nguyen, Cao Dang

• Lessons learned & impacts on future RM practices by Tung, Tran Minh

customer

• willingness to purchase & pay

• recommendation• competitor

resistance

investor

• willingness to invest

• confidence

• ratings

employee

• talent attraction

• loyalty

• commitment

media

• favorabletreatments

• marketing support

business partner

• favorable treatments

• commitment• competitor

resistance

CORPORATE REPUTATION

Hieu, Hoang, FA2012 – B - 41

REPUTATION –THE MORE IMPORTANT, THE RISKIER

• 2 types

• Direct reputation risk: from scandal and crises

• Indirect reputation risk: as a result of other risks

• Difficult to gain and easy to lose

• Possible arise from any event – more severed if mishandled

• Prolonged external & internal influences

• Specifically in VW case: loss of market leader position to competent competitors, de-credit of “Made in Germany”


REPUTATION RISK

THEN• Limited media: easily contain

and resolve risks

• Less important: limited world-trade and competitors

• Less sensitive brand awareness: (VW case) pollution was not a significant issue

NOW• Mainstream media:

news spread quickly, hard to be contained and handled properly

• Increasingly important: accessible alternate products from worldwide

• More sensitive brand awareness: (VW case) pollution is a major problem


ESTABLISHED IMAGE

Employees

• Working environment

• Salary

Hoang, Vu Tuan FA2012 – B – 11

ESTABLISHED IMAGESuppliers

• Profit

• Credibility


ESTABLISHED IMAGE

Customers

• Price & Quality

• Environmental friendly


ESTABLISHED IMAGE

Shareholders

• Company’s structure

• Management

• Performance


FEELING THE SCANDAL’S IMPACT

Lies

Untrustworthy

Air pollution

Bad service

Hai, Truong Hoang FA2012 – B – 09

WHO GETS HURT FROM THIS?

INTERNAL

Employees Shareholders

Fund Managers


WHO GETS HURT FROM THIS?

EXTERNAL

Customers Creditors

Business partners

Competitors

CSR


CRISIS MANAGEMENT – VW’S EFFORTS

Formal acknowledgement

• September 3rd, 2015, during a conference call

• Came after the EPA threatened to withhold approval for the company’s 2016 diesel models

Formal announcement to deal with crisis

• 11 million cars were involved: recalling plans

• Set aside 6.5 billion euros to cover the cost of the scandal

• Reduce 1 billion euros in annual investments.

Management activities

• Martin Winterkorn, Volkswagen AG CEO since 2008 resigned

• Two top managers in research and development of Volkswagen were dismissed

Nguyen, Cao Dang FA2012 – B – 21

MITIGATION EFFORTS

• The company suffers with money, sales, reputational damage.

• Many Germans still regard Volkswagen as an excellent car manufacturer and the scandal was exaggerated.

• Crisis communication helps consumers aware of the event and affirm that management would not allow these types of events occur again.

• U.S Environment Protection Agency announced tighter auto emission tests, while some major countries call for further investigation to reassure the public.

Impacts

Nguyen, Cao Dang FA2012 – B – 21

LESSONS LEARNED

• For companies

• Sustainability

• Pressure of objectives alignment:

A mere Nash approach

• Processes and Procedures vs. Culture

Tung, Tran Minh FA2012 – B – 37

LESSONS LEARNED (CONT’D)

• For regulators

• “Trust No One”?

• Use of public NGOs

• Reactionary efforts vs. Improvements?


IMPACTS ON REPUTATION MANAGEMENT

• Mitigation lesson:

• Cost of the truth: brand vs. litigation?

• Social media: a double edge?

• Prevention lesson:

• Adoption of metric for sustainability?

• Proper enforcement?

• Culture is at its heart


DISCUSSION POINTS

• What would you do if you are VW PR Manager?

• In crisis

• After crisis

• Is Reputational risk important?

• In comparison with other risks?

• In a statistical approach?

• Is it being treated seriously?

• Why?


REFERENCES

• Reports by Bloomberg

• Hopper, Duke University, (2015) Lessons Learned from Volkswagen Scandal

• Schrage, Harvard Business Review, (2015) Is VW’s Fraud the End of Large-Scale Corporate Deception?

• VW Sustainability reports

• Alain et al. (2015) What Can Companies Learn from Volkswagen Business Unethical Behaviour?

• Steinzer (2015) Federal White Collar Crime: Six Case Studies Drawn from Ongoing Prosecutions to Protect Public Health, Worker and Consumer Safety, and the Environment

• Goel et al. (2015) VOLKSWAGEN: THE PROTAGONIST IN DIESEL EMISSION SCANDAL

• Mark Chong, Singapore Management University (2012), “Importance of Corporate Reputation”

• Tim Heberden, Griffith Hack (griffithhack.com) (2015), “Volkswagen: quantifying the reputational damage”

• Peter W. Roberts, Grahame R. Dowling, Strategic Management Journal (2002), “Corporate Reputation and Sustained Superior Financial Performance”

4_2 - reputational risk

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